David Blackwell, Small Companies Editor, The Financial Times, London, England
The yearning for better times expressed in the 1960s pop classic “California
Dreamin’” might strike a chord with many London AIM boards as the junior market
languishes in its own economic winter.
The bleak October figures revealed that for the first time in 10 years
a calendar month had passed on London's AIM with no new money being raised. The London Stock Exchange statistics for
November show a slight improvement – new money raised was £12.4m. But secondary fundraising on London's AIM was down to £65.2m
from £81.6m in October.
Compared with November 2007, last month’s figures look worse. In that month £192.2m of new money was raised
on the London Stock Exchange's AIM and £243.1m of secondary funding was raised on London's AIM.
But US optimism is hard to quench, as a look at a Santa Monica-based
London AIM minnow shows. DDD Group specializes
in the development and licensing of software to create three-dimensional images
on television, laptop and mobile phone screens.
It was founded in 1993, and arrived on the London Stock Exchange's AIM in 2002, raising £7m at 65p
a share in its London AIM IPO.
Its technology has been developed from software originally designed to
create three-dimensional images of industrial plants for scientists and
engineers. Clients include Samsung,
Sharp and Hyundai.
Product has been shipped to South Korea, Japan and the US. But, as Chris Yewdall, chief executive, says,
nothing has happened in the UK, leaving his company in obscurity.
The shareholder list is just as impressive. Nigel Wray, the entrepreneur and investor,
has 7%; Hans Snook, the former head of Orange, has 3% and is a non-executive
director; and Arisawa Manufacturing, the Japanese group that makes flat-screen
TV parts, has 29%.
The company has also been able to keep raising money on the London Stock Exchange's AIM. The last placing was in November 2006, when
it raised £1.6m at 10p a share on London's AIM. Then in
April this year it issued £510,000 of convertible loan notes to existing
shareholders, with a conversion price of 10p a share up to April 2010.
The first-half results, announced in September, showed turnover up from
£91,000 to £354,000 – above the total for each of the past two years. The company has never made a profit, but the
interim pre-tax loss was down from £743,000 to £609,000.
But in spite of the clear support of the shareholders and the better
results the share price has continued to slide, closing unchanged at 2½p yesterday,
which gives it a market capitalization on London's AIM of just £1.86m.
Mr. Yewdall is quick to describe the company’s experience on London's AIM as “positive”,
having provided access to capital and the ability to continue development.
Flight
to quality
DDD caught my attention because Mark McGowan, its former chief financial
officer for several years, sent me an e-mail about his consultancy, also based
in Santa Monica and entitled AIM Advisers.
Mr. McGowan launched AIM Advisers in 2001 and uses his experience and
expertise to identify and assist suitable U.S. companies with London AIM IPOs.
Assuming there are compelling reasons for a company to go public, if
the company is not expected to command a market capitalization of at least
$500m, it should favour the London Stock Exchange's AIM over the US markets, he argues. Companies below this threshold are too small
for the US markets. They would get
little attention from institutional investors, research analysts and the
public. The result is often a
languishing share price, illiquidity and an inability to raise additional capital.
Sounds familiar, doesn’t it?
Well over 500 companies, or about a third of the dwindling total on London's AIM,
have a market capitalization on the London Stock Exchange's AIM of less than £5m, including DDD, and suffer from
the same problems.
DDD would not be able to join London's AIM now – it is too small. So Mr. McGowan looks for U.S. companies with an
international aspect that would have a market capitalization on London's AIM of about £100m and
raise £20m to £25m.
He believes that when the international market revives on the London Stock Exchange's AIM, there
will be a flight to quality that can be serviced from the myriad ranks of US
small companies. He hopes the next
candidate will surface towards the end of next year. It will be great if he is not just California
Dreamin’.
